Authored by Nicholas Colas via ConvergEx, Yesterday’s announcement regarding the White House plan on tax reform was a little short on details. We’ll fill in a few of the gaps in this note – not about what the plan should be, but the numbers behind what it has to deliver. The most important point: corporate tax reform is much easier to accomplish than anything else because these receipts account for less than 10% of Federal government revenue. That’s a notional positive for equity markets. A more troubling point: CBO baseline expectations for Individual Income Tax receipts over the next 10 years are for +5% (good luck finding a revenue neutral tax reform plan). Also in the “Fact mix”: total taxes as a percent of GDP are remarkably sticky over time and the CBO projects widening deficits over the long term even under their rosy scenario. Bottom line: investors want to see corporate tax reform (including repatriation relief) succeed. Individual tax reform is a “Nice to have” but negotiations there could derail the corporate side. [ZH: Which is ironic given that it is the 'personal' rates that appear to need the adjustments...] “You are what your record says you are.” Bill Parcells Yesterday’s announcement on tax reform was a bit of a miss from the perspective of market expectations. It was strong on conviction (kudos to Steve Mnuchin and Gary Cohn there), but weak on details. In truth, this is a complex topic. As the Treasury Secretary rightly observed, US tax code is byzantine in the extreme. At the same time, there are some simple numbers that can illuminate the contours of the debate. That Parcells quote at the top will guide us in this note. The record – how the US government actually raises revenues – speaks for itself. Fact #1: Corporate income taxes are NOT a primary driver of Federal government revenues. That’s good news for equity markets, since corporate tax reform sits at the top of their Trump-onomics wish list. The Congressional Budget Office data shows that last fiscal year (2016), the US government received $300 billion from this source. Total receipts were $3,267 billion, making the percentage of inflows from domestic companies only 9.2%. Expected revenues this year total $320 billion against total revenues of $3,404 billion (9.4%). The percent of total Federal revenues from corporate income tax has not been over 15% since 1978 according to CBO data. The highwater mark since 1980 was 14.7% in 2006. The fact that corporate income taxes is a relatively small portion of the Federal revenue stream makes it easier to adjust these rates and maintain a neutral long term forecast for the budget deficit. Moreover, a lower repatriation tax on the estimated +$2 trillion of offshore corporate cash could go a long way to filling the hole left by lower ongoing statutory rates. All this is good news for equity markets, and I suspect one reason US stocks have been remarkably patient with the debate in Washington over tax reforms stems from the simple calculus I have laid out here. This piece is not that hard. Fact #2: Where things get sticky is in the CBO’s “Baseline Budget Projections” for future “Individual Income Taxes” and “Payroll Taxes”. The CBO’s baseline expectations are that Individual Income Taxes will increase by a compounded annual growth rate of 5.1% over the next decade. The exact numbers (from the January 2017 CBO worksheets): $1,651 billion in 2017(e) to $2,714 billion in 2027. Given that US population growth is less than 1% and wage growth is most likely no better than 2-3%, this is a tall ask. Expectations for increases in receipts from “Payroll taxes” (withheld income taxes, Social Security and Medicare) run 3.6% annually over the next decade. The same caveats as the prior point apply here. Worth noting: CBO Baseline Budget Projections assume no recession in the next 10 years. And even then, they expect the percentage of “Debt held by the public” to rise from 77.0% to 88.9% by 2027 because of annual revenue shortfalls relative to government outlays. This is what makes the tax debate so difficult - any proposed changes to the tax code have to be revenue neutral so as not to increase what is already expected to be a growing deficit. Not only does the lawmaking process essentially require that (unless Democratic senators cross party lines) but the right wing of the Republican Party tends to be deficit hawks. There simply isn’t much room here. Fact #3: The relationship between Federal revenues from taxes and GDP is remarkably stable, and we are currently running close to the long run average. Over the last 50 years, the average of Federal tax revenues as a percent of GDP has been 17.4%; last year (2016 Fiscal) the percentage was 17.8%, well within the 1.1 point standard deviation of the last 5 decades. Since 1967 the all-time high percentage was 20.0% (2000) and the low was 14.6% (2010 and 2011). When you consider all the different tax regimes over the last 50 years, this is a remarkable observation. Since the 1960s, for example, corporate taxes as a percentage of GDP have fallen from 4.1% (1967) to 1.6% (2016). We’ve had numerous attempts to change tax codes and rates over this timespan as well. And yet that 17-18% seems etched in stone. Fact #4: The relationship between tax receipts/economic growth/equity market returns isn’t exactly what you think. During the 1970s, Individual and Payroll Taxes combined averaged 12.9% of GDP; during the Reagan years this figure was much higher 14.3%. In other words, more tax revenue flowed to the Federal government as a percent of economic output – not less. The 70s, of course, were a period of parlous equity market returns and economic growth. The Reagan years were much better, even with a greater percentage of taxes relative to economic growth. There were actually 2 rounds of tax cuts in the 1980s, in 1981 and 1986. The first was partially repealed 1982 when revenues declined as the result of recession, and there were several tweaks in subsequent years. The Tax Reform Act of 1986 furthered the reduction of individual taxes started in 1981, but was notionally revenue neutral because it reduced various loopholes and increased corporate taxes. The upshot is that tax reform can both increase revenues and economic growth, but the Reagan experience shows this is not a one-and-done process. Even the Gipper had to backpedal a little after the `1981 law passed, but eventually got his agenda across the goal line in 1986. Fact #5 (Summary): When it comes to corporate earnings and cash utilization, and hence equity market performance, getting corporate tax reform matters more than anything else. Moreover, it is relatively simple because the numbers are smaller than Individual/Personal Tax reform. And the results – greater business confidence driven by certainty on the topic and lower tax rates – would be an unalloyed positive. Not to mention the onshoring of billions of dollars currently captured offshore…. But – and it’s a big “But” – corporate tax reform seems inextricably linked to individual tax reform. Here, the story gets complicated. CBO baseline estimates look unrealistically optimistic and dynamic scoring (taking into account the economic effects of tax code changes) is not exactly a science. Or an art… Even a tax plan crafted by an omniscient and caring Deity could fail CBO scoring, let alone one created by well-meaning bureaucrats. In the end, Coach Parcells remains our guiding light on the issue of tax reform. The record is clear: lower taxes and simpler tax codes help economic growth. They are not, however, the only driver and other issues like Fed policy and business cycles can hijack the market’s attention (as it did in 1981). We’ve argued recently that “Trump Trade 1.0” is over (post-election “hope” bump) and Version 2.0 (actual results) is not yet here. Nothing about the tax reform initiative makes me feel confident that we’ll be downloading a new market narrative any time soon.
SAN FRANCISCO ― California Gov. Jerry Brown (D) made the case Thursday that President Donald Trump’s anti-environment rhetoric could actually be a blessing for climate advocacy. The president’s indifference to the existence of man-made global warming may inspire other people to step up and support sustainable actions, Brown said. “Actually, Trump is one of the most positive things that has happened in the climate movement,” the governor declared at the Ceres Conference, where business leaders and investors had gathered in downtown San Francisco to discuss sustainability and climate issues. “He’s given climate denial really a bad name.” Brown said the “obvious absurdity of what is now being proposed in Washington” is so apparent that “thoughtful, ordinary people are going to react, and react in positive ways and a series of steps that will really get on the sustainable path.” Trump’s anti-climate actions have included appointing climate science denier Scott Pruitt to run the Environmental Protection Agency and rolling back some of President Barack Obama’s policies aimed at curbing greenhouse gas emissions. But Brown said Trump is just one of many challenges facing environmental advocates. “Trump is only one of our problems, and he’s not the biggest problem,” Brown said. “That’s not to say he’s not a big problem. ... The biggest problem is waking up to the truth of our situation and responding in a thoughtful and wise way.” Mindless optimism, Brown argued, isn’t acceptable at this point. “It’s not fine,” he said. “It’s not getting fine.” He urged the business community to act on its own, citing developments like zero-emission cars. He also called on the audience to press lawmakers to find the “political will” to address climate change, noting that Republicans need to be on board to achieve real national progress. “Know that there’s time, but that time is running out, so it’s absolutely imperative that you do everything you can,” he said. Brown is one of the nation’s most prominent climate advocates. He represented the United States during the Paris climate talks in 2015 and has pushed through sweeping reforms in California to reduce emissions. He is also a fierce critic of the president and has vowed to fight Trump on climate policy. In March, he called Trump’s executive order upending Obama-era climate policies a “colossal mistake.” In his January state of the state address, he warned of the dangers of giving in to climate denial. “We’ve got the scientists, we’ve got the lawyers, and we’re ready to fight. We’re ready to defend,” Brown said in December. “If Trump turns off the satellites, California will launch its own damn satellite.” Brown’s remarks came two days ahead of the People’s Climate March planned in Washington and other cities around the country. Thousands are expected to attend the rallies in opposition to Trump’s climate policies. -- This feed and its contents are the property of The Huffington Post, and use is subject to our terms. It may be used for personal consumption, but may not be distributed on a website.
Today there was a lot of sitting around and waiting for the market as earnings reports due after the bell were the focus
GoPro, Inc. (GPRO) just released its financial results for the first quarter of 2017, posting a loss of $0.44 per share and revenues of $218 million. Currently, GoPro is a Zacks Rank #2 (Buy), and is down 2.2% to $8.94 per share in trading shortly after its earnings report was released.
Expedia, Inc. (EXPE) just released its financial results for the first quarter of 2017, posting a loss of $0.15 per share and revenues of $ 2.18 billion. Currently, Expedia is a Zacks Rank #3 (Hold) and is up 0.33% to $136.20 per share in trading shortly after its earnings report was released.
Baidu, Inc. (BIDU) just released its financial results for the first quarter of 2017, posting earnings of $0.66 earnings per share and revenues of $2.3 billion. Currently, Baidu is a Zacks Rank #3 (Hold) and is up 0.64% to $187.86 per share in trading shortly after its earnings report was released.
NEW YORK (Reuters) - Investors ramped up their exposure to U.S.-based international-focused stock funds on relief that centrist Emmanuel Macron took the first round of voting in the French...
WASHINGTON ― When Ajit Pai, President Donald Trump’s pick to chair the Federal Communications Commission, announced his plan to roll back his own agency’s net neutrality rules on Wednesday, he sounded nervous. “I am confident we will finish the job,” he said, in a somewhat stilted speech at the Newseum in Washington, D.C. “This is a fight we intend to wage, and this is a fight we are going to win.” If Pai is nervous, he has good reason to be. Net neutrality is extremely popular with both Republicans and Democrats. The activists who support strong rules are loud and well-organized, and the organizations that oppose the rules — cable companies like Comcast and telecom providers like Verizon, HuffPost’s parent company — are not loved. When cable and telecom companies lost the fight against the Obama administration’s strong net neutrality rules in 2015, they lost badly. The fight this time could be even fiercer. In 2014, then-FCC Chairman Tom Wheeler, a former cable and wireless industry lobbyist, said he was planning to avoid the strong net neutrality protections that activists were hoping for. Activists mobilized, fearing a dystopian future where telecom companies could censor websites or slow traffic for a profit. They launched national campaigns, painted Wheeler as a lobbyist sellout, and descended on his house. Comedian John Oliver famously compared the appointment of Wheeler to a dingo watching a baby. (Dingoes eat babies.) Then-President Barack Obama publicly came out in support of strong net neutrality rules in November 2014, which conservatives have pointed to as evidence that he unduly influenced Wheeler. But the president simply added to the existing momentum, Wheeler said later. And big-weight tech companies had also joined activists in speaking out in support of an open internet. Wheeler proposed strong rules in February 2015 — rules that required reclassifying internet service providers as a “common carrier” under Title II of the 1934 Communications Act — and the FCC was flooded with public comments supporting the decision. The agency subsequently approved the rules in a 3-2 party-line vote. Now, Pai wants to roll them back and allow the industry to police itself. The agency could take it a step further and propose eliminating any existing rulings on net neutrality, permitted they have a compelling legal case to do so, senior FCC officials told Recode on Thursday. Pai is expected to go through a lengthy rule-making process that includes a period of public comment. (People can start commenting on the draft released today, an agency spokesman said.) Gigi Sohn, who previously served as counselor to Wheeler, estimates that the repeal process will take at least seven to 10 months. “We know from when we did the net neutrality rules, the groups will make it painful for every single day,” she said. “There will be emails, phone calls, protests ― it’s going to be a tsunami.” Having now read @AjitPaiFCC's proposal 2 repeal #netneutrality, I would say it leans heavily towards NO rules at all. Not even transparency.— Gigi Sohn (@gigibsohn) April 27, 2017 Pai should know the backlash is coming: He’s active on Twitter, where he is already getting hammered by activists over his proposal. And as a former commissioner who voted against Wheeler’s rules, he was around for the last fight. This time, the backlash could be even worse. Wheeler’s FCC issued the current net neutrality rules only after an appeals court said it did not have solid legal footing for earlier rules. But that same appeals court upheld the new, stronger rules last year, soundly rejecting arguments from AT&T and other groups that had sued to overturn them. (A petition to rehear the case is pending before the full U.S. Court of Appeals for the D.C. Circuit, where judges appointed by Democratic presidents hold a solid majority.) Activists are better-prepared for a fight this time, said David Segal, executive director of Demand Progress, a leading pro-net-neutrality group. “People are better networked than they previously were, and are looking for opportunities to engage,” he told HuffPost. “We plan to make use of the internet to save the internet, as we did last time.” A number of startups, including Engine Advocacy and Y Combinator, have already started circulating a letter opposing Pai’s actions. Public interest groups also created a crowdfunding effort to relaunch BattleForTheNet.com, an activism campaign to help protect the rules. For now, some of the larger corporations that have supported net neutrality are keeping quiet. Google declined to comment, but directed a reporter to the Internet Association’s statement arguing against any rule change. (Google largely sat out the net neutrality fight in 2014, speaking through think tanks and industry groups then, too.) Netflix, which became the poster child for net neutrality in 2014, also seems to have tempered its stance. Two days before Trump’s inauguration, the company told investors that weaker net neutrality laws would be unlikely to “materially affect” its U.S. profit margins, though Netflix still supports net neutrality. (Netflix did not respond to a request for comment.) Pai will likely want support from Congress. But at a time when Republican members of Congress are dogged by angry protesters at nearly every town hall they host, that won’t be an easy ask. “Congress is a very difficult playing field for him because members of Congress have been so overwhelmed by constituents contacting them in support of net neutrality,” Segal said. Members of Congress in swing districts, already fearing an anti-Trump wave in 2018, may also shy away from what will likely be a bitter fight. And without an overwhelming majority that includes some Democrats, the specter of a filibuster looms over any net neutrality legislation. Pai also has to be reconfirmed by the Senate by the end of 2017, and that may occur before his net neutrality fight is over. Though he has support from a GOP-controlled Congress, the outcome of the current battle could influence his reconfirmation chances. “This is a litmus test,” Sohn said. “And he knows it.” -- This feed and its contents are the property of The Huffington Post, and use is subject to our terms. It may be used for personal consumption, but may not be distributed on a website.
David Bartosiak give us his thoughts on Apple (AAPL) before they report earnings with some ideas on how to play the Options Market.
Hillenbrand Inc. (HI), a leader in the North American death care industry, is set to report second-quarter fiscal 2017 results on May 2.
Intel Corp. (INTC) just released its first-quarter fiscal 2017 financial results, posting earnings of 66 cents per share and revenues of $14.8 billion.
Skyworks Solutions (SWKS) just released its second-quarter 2017 financial results, posting earnings of $1.33 per share and revenues of $851.7 million.
Estee Lauder (EL) is slated to report third-quarter fiscal 2017 results on May 3.
Specialty chemicals and performance materials producer, Cabot Corp. (CBT), is set to release second-quarter fiscal 2017 results after the market closes on May 1.
Nu Skin (NUS) is all set to report first-quarter 2017 results on May 3, after the closing bell.
Potential and actual FDI spillovers in global value chains : the role of foreign investor characteristics, absorptive capacity and transmission channels
Using newly collected survey data on direct supplier-multinational linkages in Chile, Ghana, Kenya, Lesotho, Mozambique, Swaziland, and Vietnam, this paper first evaluates whether foreign investors differ from domestic producers in terms of their potential to generate positive spillovers for local suppliers. It finds that foreign firms outperform domestic producers on several indicators, but have fewer linkages with the local economy and offer less supplier assistance, resulting in offsetting effects on the spillover potential. The paper also studies the relationship between foreign investor characteristics and linkages with the local economy as well as assistance extended to local suppliers. It finds that foreign investor characteristics matter for both. The paper also examines the role of suppliers' absorptive capacities in determining the intensity of their linkages with multinationals. The results indicate that several supplier characteristics matter, but these effects also depend on the length of the supplier relationship. Finally, the paper assesses whether assistance or requirements from a multinational influence spillovers on suppliers. The results confirm the existence of positive effects of assistance (including technical audits, joint product development, and technology licensing) on foreign direct investment spillovers, while the analysis finds no evidence of demand effects.